MINNEAPOLIS - A federal loan program that has helped hundreds of thousands of Americans buy homes in rural areas is about to run out of money, potentially crippling the real estate market in many small communities.

Since fall, loans from the Department of Agriculture have fueled much of the real estate business in some parts of the country. Real estate agents are pleading with Congress to find a way to keep the money flowing until more funding becomes available this year.

The program has doubled in size, thanks to stimulus money, but now appears to be a victim of its own success, largely because of the generous terms offered to borrowers.

The USDA's Rural Development program provides 30-year fixed-rate mortgages at market rates. Buyers do not have to put any money down, unlike loans from the better known Federal Housing Administration, which requires a down payment of 3.5 percent. Also, unlike FHA loans, there are no monthly mortgage insurance premiums in the USDA program.

The loans are offered through local lenders, and the approval process usually is fast. To be eligible, people must be in communities with fewer than 20,000 residents and live outside metropolitan areas.

Even with its funding doubled, the program is expected to run out of money this month, said Jay Fletcher, an agency spokesman.

That has alarmed the National Association of Realtors, which is pressuring Congress to continue the program until the end of the fiscal year, Sept. 30, after which the Obama administration has proposed making an additional $12 billion in loans available.
Program officials note that although the loans are aimed at low- to moderate-income buyers, the program's default and foreclosure rates are lower than for FHA loans.

Also unlike FHA, Rural Development has a network of field offices nationwide that review the applications before closing.